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Fleming v. Fidelity Management Trust Co.

United States District Court, D. Massachusetts

May 4, 2018

KATHERINE FLEMING, EDWARD R. HADUCK, and VICTORIA WENDEL, Plaintiffs,
v.
FIDELITY MANAGEMENT TRUST COMPANY and FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC., Defendants.

          MEMORANDUM AND ORDER ON MOTION TO VACATE AND AMEND JUDGMENT AND FOR LEAVE TO FILE AMENDED COMPLAINT

          ALLISON D. BURROUGHS U.S. DISTRICT JUDGE

         On September 22, 2017, the Court granted Defendants' motion to dismiss Plaintiffs' putative class action asserting violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) for failure to state a claim. See Fleming v. Fidelity Mgmt. Trust Co., No. 16-cv-10918-ADB, 2017 WL 4225624 (D. Mass. Sept. 22, 2017), ECF No. 54 (“MTD Order”). On October 20, 2017, Plaintiffs filed the instant motion pursuant to Fed.R.Civ.P. 15(a), 59(e), and/or 60(b) to vacate and amend the judgment and for leave to file an amended complaint. [ECF No. 56]. For the reasons stated herein, the motion is DENIED.

         I. BACKGROUND

         The Court assumes the parties' familiarity with the MTD Order and therefore provides only a brief summary of that decision. Plaintiffs are individual participants within the meaning of ERISA, 29 U.S.C. § 1002(7), in the Delta Family-Care Savings Plan (“Plan”). The Plan qualifies under ERISA as both an employee pension benefit plan, 29 U.S.C. § 1002(2)(A), and an individual account plan, 29 U.S.C. § 1002(34). Defendants Fidelity Management Trust Company (“FMTC”) and Fidelity Investments Institutional Operations Company, Inc. (“FIIOC”) were hired to provide certain services to the Plan. As trustee of the Plan, FMTC holds the Plan's investment assets and executes investment transactions, whereas FIIOC, a wholly owned subsidiary of FMTC, provides trust services, record-keeping, and information management services to the Plan. The assets of the Plan are held in and invested through a Master Trust, which is controlled in all material respects by a Master Trust Agreement involving the Plan sponsor (Delta Air Lines, Inc.), the named fiduciary (the Delta Air Lines, Inc., Benefit Funds Investment Committee), the Plan administrator (the Administrative Committee of Delta Air Lines, Inc.), and the trustee (FMTC).

         The original complaint essentially asserted two theories of wrongdoing with respect to the Plan. First, it challenged the relationship between Defendants and a third party, Financial Engines Advisors, LLC (“FE”), which provides investment advice services to individual Plan participants for a fee. Plaintiffs asserted that Defendants and FE have agreed to an improper “pay to play” arrangement in that FE, in exchange for being included as the Plan's investment advisor, agreed to pay Defendants a significant percentage of the fees that FE collects from individual Plan investors. According to Plaintiffs, Defendants hired FE and controlled the negotiation of the terms and conditions under which FE would provide its services to the Plan participants, including the fee-sharing arrangement. This arrangement was alleged to be unrelated to any substantial services performed by Defendants and purportedly inflated the cost of investment advice for Plan participants in violation of the fiduciary responsibility and prohibited transaction provisions of ERISA, 29 U.S.C. §§ 1104, 1106.

         The Court recognized that Plaintiffs' theory was premised on the notion that Defendants, rather than Delta, hired or selected FE, but concluded that the Master Trust Agreement “compels the conclusion that Delta, not Defendants, exercised final authority or control over the selection or hiring of FE.” MTD Order at 14. Moreover, if Delta believed that the fee-sharing arrangement between Defendants and FE wrongfully inflated the cost of investment advice services, the Court determined that Delta was free to decline to hire FE or to terminate its relationship with both Defendants and FE. Insofar as the original complaint challenged the amount of the fees that Defendants collect from FE, the Court held that Defendants were not acting in a fiduciary capacity when they negotiated with plan sponsors for their own compensation, finding it “difficult to see how a service provider could be an ERISA fiduciary when it negotiates a fixed rate of compensation from an entity other than the Plan, as Plaintiffs allege here, ” particularly given that the Complaint did not allege that “once FE was hired, Defendants retained any authority or control over the rate of compensation it would receive from FE.” Id. at 15-16.

         Second, the original complaint attacked the portal, “BrokerageLink, ” through which individual Plan participants may invest their savings on a self-directed basis. BrokerageLink allowed individuals to purchase an array of securities, including a selection of mutual funds that are not included among the Plan's designated investment alternatives. Plaintiffs took issue with the specific classes of mutual fund shares made available for purchase through BrokerageLink. The original complaint alleged that Defendants breached their fiduciary duty to the Plan by selecting only higher-cost share classes (which typically include revenue-sharing payments made to parties who distribute the shares or provide other services) to be available through BrokerageLink, while excluding lower-cost share classes, thereby maximizing their revenue-sharing payments at the expense of Plan participants.

         The Court accepted as true Plaintiffs' assertion that Defendants were responsible for deciding which share classes of mutual funds would be made available through BrokerageLink but found this “product design” decision to be wholly distinct from the decision to make BrokerageLink available to individual Plan participants, which the Master Trust Agreement showed rested solely with Delta. Id. at 10. The Master Trust Agreement made clear that the Delta entities, not Defendants, retained control over whether BrokerageLink-and by extension the classes of mutual fund shares offered through it-was available to Plan participants. The Court further noted that there was no suggestion in the original complaint that Delta lacked the authority or ability exclude BrokerageLink as an offering if it determined that the share classes available through BrokerageLink were unsuitable for Plan participants. Accordingly, Defendants did not exercise the type of authority or control over the decision to include BrokerageLink in the Plan that would give rise to ERISA liability.[1]

         II. DISCUSSION

         Plaintiffs now move to vacate the order of dismissal and to alter it to be without prejudice, such that Plaintiffs may file their proposed amended complaint [ECF Nos. 56, 57-1]. Defendants oppose the motion on the grounds that Plaintiffs fail to meet their burden to vacate and amend the judgment and that their new allegations do not cure the deficiencies of the original complaint.

         The parties agree that Plaintiffs must satisfy the standards under Federal Rules of Civil Procedure 59(e) and/or 60(b), as well as Rule 15, to obtain the requested relief. “Ordinarily, Rule 15(a) governs a motion to amend a complaint. That rule directs that ‘[t]he court should freely give leave [to amend] when justice so requires.'” Fisher v. Kadant, Inc., 589 F.3d 505, 508 (1st Cir. 2009) (quoting Fed.R.Civ.P. 15(a)(2)). “If, however, a motion to amend is filed after the entry of judgment, the district court lacks authority to consider the motion under Rule 15(a) unless and until the judgment is set aside.” Id. (citing Palmer v. Champion Mortg., 465 F.3d 24, 30 (1st Cir. 2006)). “As long as the judgment remains in effect, Rule 15(a) is inapposite.” Id. at 508-09. Here, Plaintiffs filed the instant motion on October 20, 2017, after the entry of judgment on September 22, 2017. [ECF Nos. 54, 55, 56]. For the purposes of deciding this motion, it is of no consequence that Plaintiffs included in their opposition to the motion to dismiss a one-sentence request for leave to amend the complaint [ECF No. 28 at 32], contingent upon the court dismissing the case. See Fisher, 589 F.3d at 510 (“We hold that a passing request for contingent leave to file an amended complaint, made in an opposition to a motion to dismiss, is insufficient, in and of itself, to bring a post-judgment motion for reconsideration within the orbit of Rule 15(a).”); Gray v. Evercore Restructuring LLC, 544 F.3d 320, 327 (1st Cir. 2008) (contingent request for leave to amend in opposition brief “does not constitute a motion to amend a complaint”). The first question, then, is whether the judgment may be set aside under, “say, Rule 59(e) or Rule 60(b).” Fisher, 589 F.3d at 509.

         Plaintiffs filed the instant motion within the 28-day time period prescribed by Rule 59(e). Fed.R.Civ.P. 59(e) (“A motion to alter or amend a judgment must be filed no later than 28 days after the entry of the judgment.”). Under Rule 59(e), “relief is granted sparingly, and only when ‘the original judgment evidenced a manifest error of law, if there is newly discovered evidence, or in certain other narrow situations.'” Biltcliffe v. CitiMortgage, Inc., 772 F.3d 925, 930 (1st Cir. 2014) (quoting Global Naps, Inc. v. Verizon New England, Inc., 489 F.3d 13, 25 (1st Cir. 2007)). For instance, “a motion for reconsideration should be granted if the court ‘has patently misunderstood a party . . . or has made an error not of reasoning but apprehension.'” Ruiz Rivera v. Pfizer Pharm., LLC, 521 F.3d 76, 82 (1st Cir. 2008). In “rare” circumstances, district courts in this Circuit have recognized that a Rule 59(e) motion may be granted “to prevent manifest injustice.” Trinidad v. City of Boston, No. 07-cv-11679-DPW, 2011 WL 915338, at *3 (D. Mass. Mar. 15, 2011).

         Alternatively, Plaintiffs seek relief under Rule 60(b), which provides that “the court may relieve a party . . . from a final judgment, order, or proceeding, ” for, as relevant here, “newly discovered evidence” or “any other reason that justifies relief.” Fed.R.Civ.P. 60(b)(2), (6). Relief under Rule 60(b) is likewise “extraordinary in nature, ” Karak v. Bursaw Oil Corp., 288 F.3d 15, 19 (1st Cir. 2002), and should be granted “sparingly, ” Cintron-Lorenzo v. Departamento de Asuntos del Consumidor, 312 F.3d 522, 527 (1st Cir. 2002) (citation omitted), as “[s]uccess under [Rule 60(b)] requires more than merely casting doubt on the correctness of the underlying judgment.” Fisher, 589 F.3d at 512. Plaintiffs, as the moving parties, bear the burden of making the requisite showing under Rule 59(e) or Rule 60(b). See Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 7 n.2 (1st Cir. 2005); Fisher, 589 F.3d at 512.

         Here, Plaintiffs claim with minimal explanation that after issuance of the MTD Order, they “worked diligently to find and bring to light the facts that show this case satisfies the pleading standard” and “determined that there was evidence that could address the Court's concerns about the original Complaint.” [ECF No. 57 at 4-5]. Yet, they also claim that the Court identified missing allegations that “Plaintiffs did not think needed to be pled-not because the facts did not support the allegations, but because Plaintiffs understood the law not to require them.” Id. at 7-8. Plaintiffs further specify that ...


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